Chinese Smart Device Manufacturer Challenging Tesla and Apple

The electric vehicle factory established by the largest Chinese smartphone manufacturer has become a tourist attraction in Beijing. A visit to the factory must be booked a month in advance, and during peak times, entry is even decided by lottery, reported the Financial Times.

Xiaomi’s loyal fans, referred to as ‘mi fen’, visit the smart car factory daily and observe how a car rolls off the production line every 76 seconds. Guides proudly compare the processes to those at Tesla, as the Chinese company seeks to follow its American rival in production automation while simultaneously developing key components for electric vehicles in its own facilities.

Although only two models have been presented so far, according to estimates from Citic Securities, next year Xiaomi’s cars could surpass Tesla’s sales in China. Their new SUV attracted hundreds of thousands of pre-orders within minutes of its unveiling in June, while the initial sports sedan ranked second in the premium car segment in the first half of the year, just behind Tesla’s Model Y. Customer enthusiasm has also strongly reflected on the stock market: Xiaomi’s share value has surged nearly 200 percent in the past year.

Once known only as an assembler of devices based on supplier components, Xiaomi is now striving to establish itself as a serious manufacturing force.

The company was founded in 2010 by Lei Jun, and the name ‘Xiaomi’ in Chinese means ‘millet’. Lei explained at the time that the company was born in the spirit of ‘millet and rifles’, referring to Mao Zedong‘s description of the modest military resources of the Communist Party during the civil war. Despite its humble beginnings, Xiaomi surpassed established players within the first three years and became the third-largest smartphone manufacturer in the world, continuing to expand its offerings from rice cookers to robotic vacuum cleaners.

However, critics have consistently pointed out the lack of proprietary technologies and excessive dependence on partners.

– The reason there are so many products in the ecosystem is that historically, these were not Xiaomi’s products in the full sense of the word. The company had a large network of partners – said Richard Windsor, founder of the research platform Radio Free Mobile.

We used to say that Xiaomi sourced everything externally and just assembled it into one brick, a device… just like building with Lego blocks. But the truth is that in recent years it has continuously invested in research and development – added Ivan Lam, a smartphone analyst at Counterpoint Research.

Lei himself has acknowledged this criticism on several occasions, but he is determined to pull the company out of the shadow of a ‘contract assembly shop’ and position it as a manufacturer of premium products.

Xiaomi made its first major step in its own production in 2020 when it opened a factory worth 600 million yuan (about 83.5 million dollars) on the outskirts of Beijing for small series of its first foldable phone. Since the beginning of this year, in line with Lei’s ambition to ‘measure up’ to Apple, it has also transferred the production of its most expensive smartphone models to its own factories. According to Canalys data, in the first quarter of 2024, its premium smartphone shipments increased by 81 percent year-on-year, while total smartphone sales grew by only three percent.

– Technology brands achieve a premium position when they are known for advanced technology, and advanced factories are one of the most tangible proofs of that – Xiaomi stated to the Financial Times.

They are now applying the same recipe in the automotive industry. Just three years after announcing its entry into car manufacturing, Xiaomi unveiled its first model, the Speed Ultra 7 (SU7) sports sedan, produced in the new factory in March last year. Ironically, just a month earlier, Apple had shut down its decade-long project to create the ‘Apple Car’.

With features of autonomous driving and an operating system that connects cars with smartphones and household devices, Xiaomi also emphasizes investments in its own development of automotive components and equipment – from special aluminum alloys and ultra-steel to molds for casting car bodies.

Customers have wholeheartedly embraced this vision. After the SU7 became one of the best-selling cars in the ruthless Chinese market, the newly introduced SUV YU7, designed as a direct competitor to Tesla’s Model Y, collected 200,000 pre-orders in just three minutes. Lei called this response a ‘miracle’.

– Call me factory director Lei – the billionaire wrote on social media, praising the advantages of his car and smartphone factories.

Xiaomi is already building the second phase of its electric vehicle plant, aiming to double its capacity and reach a planned annual production of 350,000 vehicles. A factory for air conditioners is also under construction in Wuhan. This clearly aligns the company with Beijing’s call for domestic companies to develop ‘new, quality manufacturing forces’.

Positive comments have also come from the People’s Daily, the Communist Party’s newspaper, which drew a parallel between Chinese engineers in the 1950s rummaging through imported steel in search of car parts and today’s production, where more than 700 robots work in Xiaomi’s factory.

Xiaomi is expanding its strategy to another key area of competition with American tech giants – the development of its own chips. Following Apple’s example, it introduced the Xring O1, a system-on-chip made using an advanced 3-nanometer process, at the beginning of this year. This processor powers their latest smartphones and tablets, placing Xiaomi among elite manufacturers like Apple, Samsung, and Huawei.

– A proprietary chip can help Xiaomi build a more integrated ecosystem, as it enables seamless communication among devices – said Lam from Counterpoint, but also warned of vulnerability in the event of possible American sanctions. The chipset is produced by Taiwanese TSMC, FT reported in June.

Xiaomi plans to invest at least 50 billion yuan (7 billion dollars) in the development of advanced chips over the next ten years, while an additional 200 billion yuan is allocated for the development of ‘hardcore’ technologies, including operating systems and artificial intelligence products, over the next five years.

The company’s president Lu Weibing emphasized on a call with investors last week that the ability to develop its own chips will be a key dividing line among tech companies:

– In the future, there will only be two types of companies: those that develop their own chips and those that do not. A generational gap in core competitiveness will emerge between them – he concluded.